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Road, Rail Projects Lack Competition, Says Australian Think Tank

Grattan Institute estimates that 25 percent of big infrastructure projects will cost the taxpayers.

CANBERRA, Australia — Australian governments love to boast about the amount of money they are setting aside for infrastructure projects, such as road building, but a new report questions whether taxpayers are getting value for money.

Treasurer Josh Frydenberg announced AU$ 15 billion ($11.64 billion) in additional infrastructure commitments as part of the government’s ongoing AU$ 110 billion ($85.33 billion), 10-year investment pipeline.

State governments have also pledged billions of dollars in road and transport projects.

But an analysis by the Grattan Institute think tank has found taxpayers end up paying too much for significant projects because Australia’s governments don’t drive a hard bargain on contracts with big construction firms.

It estimates about 25 percent of projects end up costing taxpayers more than governments expected when construction started.

In particular, Australia’s transport infrastructure costs are above the global average.

Grattan Institute think tank has found taxpayers end up paying too much for major projects. (David Mariuz/AAP Image)

“Our governments are getting major projects wrong, and taxpayers are left to pick up the tab,” said Marion Terrill, the institute’s transport and cities program director.

“Governments should stop worrying about the profitability of the industry and start delivering quality services at the lowest long-term cost to the community.”

She said the competition was fundamental to get quality infrastructure at a sharp price.

But as the size of projects has grown, so has the size of contracts, and with larger contracts, competition inevitably thins.

Few Australian firms having the technical and financial capability to win contracts worth AU$ 1 billion ($0.78 billion) or more, yet governments often give undue priority to domestic experience, making it hard for international firms to win contracts.

The report also says governments often rush projects to market to announce and start them before the next election.

Signage for the Hawthorn Grange aged care facility is seen in Hawthorne, Melbourne. (James Ross/AAP Image)

“State governments often rush projects to market, so they can announce and start them before the next election. But in a rush, governments don’t always identify or mitigate expensive problems such as contaminated soil, and they’re not systematic enough about dividing projects into bundles or choosing the contract type with the right incentives for the particular job,” Grattan Institute said in a statement.

Governments should only sign contracts that they are prepared to enforce and should award all infrastructure contracts through an open tender process.

And Australian governments should investigate how similar countries overseas manage to build high-quality transport infrastructure more cheaply.

But in a rush, governments don’t always identify or mitigate expensive problems.

Among its recommendations, Grattan calls on governments to only sign contracts they are prepared to enforce and to award all infrastructure contracts through an open tender process.

It also says Australian governments should investigate how similar countries overseas manage to build high-quality transport infrastructure at a lower cost.

(Edited by Vaibhav Vishwanath Pawar and Ojaswin Kathuria)